Inventory Workshop

Operations Research II

Problem 1
Inquire about ABC Inventory classification. Then, classify the following products
according to the value of use criteria:
Demand
Article Cost (Unitary)
(Annual)
Art. 1 $ 3.750.000,00 40
Art. 2 $ 40.000,00 200
Art. 3 $ 4.315.000,00 220
Art. 4 $ 17.500,00 235
Art. 5 $ 950.000,00 260
Art. 6 $ 40.500,00 365
Art. 7 $ 5.200,00 405
Art. 8 $ 138.500,00 538
Art. 9 $ 1.200.000,00 675
Art. 10 $ 158.000,00 812
Table 1: Data.
Solution

The ABC analysis is an inventory categorization technique. The ABC analysis categorizes
inventory into three categories. Category "A" has very tight control and accurate records,
Category "B" has less tightly controlled and good records, and category "C" has the
simplest controls possible and minimal records.

❏ Category 'A' – 10% - 15% of the items accounts for 75% of the annual
consumption value of the items.
❏ Category 'B' – 25% of the items accounts for 20% of the annual consumption
value of the items.
❏ Category 'C' – 65% of the items accounts for 5% of the annual consumption
value of the items.
Due to this system, it is possible to give the optimum level of importance and the
appropriate management system to each article. In this way, it is possible to achieve an
important economic savings and better time management in order to invest in products that
add value.

Classification
 Demand
Article Cost (Unitary) Net Profit % Accumulated % Category
(Annual)
Art. 3 $ 4.315.000,00 220 $ 949.300.000,00 39,75% 39,75%
A
Art. 9 $ 1.200.000,00 675 $ 810.000.000,00 33,92% 73,67%
Art. 5 $ 950.000,00 260 $ 247.000.000,00 10,34% 84,01%
B
Art. 1 $ 3.750.000,00 40 $ 150.000.000,00 6,28% 90,29%
Art. 10 $ 158.000,00 812 $ 128.296.000,00 5,37% 95,67%
Art. 8 $ 138.500,00 538 $ 74.513.000,00 3,12% 98,79%

Art. 6 $ 40.500,00 365 $ 14.782.500,00 0,62% 99,40%

C
Art. 2 $ 40.000,00 200 $ 8.000.000,00 0,33% 99,74%

Art. 4 $ 17.500,00 235 $ 4.112.500,00 0,17% 99,91%

Art. 7 $ 5.200,00 405 $ 2.106.000,00 0,09% 100,00%

Total $ 10.614.700,00 $ 3.750,00 $ 2.388.110.000,00 100%

Table 2: Categories.

Graphic 1: Pareto Chart.

According to the graphic, in the category A, we can find the articles 3 and 9, they require
constant attention, better conditions of location and space in storage since it represents the
highest total value of inventory. Followed it is category B, which are articles 5 and 1, these
do not require as much attention as the articles in category A and can be reviewed
periodically. Finally, the articles in category C are 10, 8, 6, 2, 4, 7 , those have the biggest
number of inventory, therefore a reorder point system that does not require physical stock
assessment is usually sufficient.
All of these actions are gonna bring more efficient in time management and improvement
in the logistic of the inventory and storage, bringing benefits to the company.

Problem 2
Un producto tiene un tiempo de entrega de 5 semanas. La demanda durante estas 5 semanas
se distribuye uniformemente entre 100 y 150 unidades. Los costos de mantener inventario
se estiman en 10% del valor de la unidad que es de US$10. Además, los costos de realizar
un pedido son de US$40. Actualmente se maneja una política de manejo de inventario de
tamaño de pedido constante para un nivel de servicio de 98%. Con el fin de reducir los
costos anuales, se está pensando en adoptar una de las siguientes estrategias:
A) Hacer un esfuerzo por reducir los costos de realizar los pedidos. Se prevé una
reducción de un 15%.
B) Reducir el nivel de servicio a 93%.

1. ¿Cuál es su recomendación para minimizar el costo promedio anual? Asuma que

el año tiene 52 semanas.
Demand ~ U[100, 150] Co = $40
Service level = 0.98 Ch = ($10)(0,1) = $1
Rango de déficit = 0,02 Year = 52 weeks

L = 5 weeks

D = E(x) = 125 units (Five weeks)

D’ = (125)*(52/5) = 1300 units (Annual)

❏ Strategy A
R
1 1
∫ ❑ 50 dx=0.98 → [ R - 100 ] = 0.98
100
50

R
−2=0.98 → R = 149
50

Co = (40)(1 - 0.15) = $34

Ss = R - μ(DDLT) = 149 - 125 →Ss = 24

 2 DCo
Q ﹡=
√ Ch
=
√
(2)(1300)(34)
1

Q* = 297,32 unidades

D Q
Total Cost = Co( )+C h( +Ss)
Q 2
1300 297,32
TC = (34)( )+( 1)( +24 )
297,32 2

TC = $321,321

❏ Strategy B
R
1 1
∫ ❑ 50 dx=0.93 → [ R - 100 ] = 0.93
100
50

R
−2=0.93 → R = 146,5
50

Co = $40
Ss = R - μ(DDLT) = 146.5 - 125 →Ss = 21,5

2 DCo
Q ﹡=
√ Ch
=
√
(2)(1300)(40)
1
Q* = 322,5 unidades

D Q
Total Cost = Co( )+C h( +Ss)
Q 2
1300 322,5
TC = ( 40)( )+(1)( + 21,5)
322,5 2

TC =343,99

Taking into account the total costs of each strategy it is recommended to choose strategy A
in which ordering costs are decreased.

2. Con el nivel de servicio actual de 98%, ¿cuál es la probabilidad de no quedarse sin

inventario nunca durante el año?

1
f (x)=
50
❏ Probability of Service Level
P [DDLT < R] = 0.98

❏ Probability of Stock out

P [DDLT > R] = 0.02 (Deficit range)
 It is necessary to estimate the number of times to order during the year, in order to
know the probability of never stock out in the year:

Annual Demand 1300

Number of times to order in the year = = = 4,7323
Quanti ty 297,32

Therefore, the probability of never stock out is given by:

( P[ DDLT < R])N º of ׿order ∈t h e year

=(0.98)4,372= 0,9154

References
[1] Instituto de Productividad Empresarial Aplicada (IPEA). Inventory Classification. ABC
system. Retrieved from: https://www.ipeaformacion.com/logistica/clasificacion-de-
inventarios-sistema-abc/